LANSING, Mich. – Detroit’s emergency manager asked lawmakers Tuesday to quickly approve nearly $195 million in state aid to help the city emerge from bankruptcy, saying frankly that to ensure a compromise on pensions does not fall apart, “We need your money.”
Kevyn Orr testified at the first of four House hearings on legislation that would authorize the $194.8 million lump-sum payment from Michigan’s savings account to match contributions from foundations and the Detroit Institute of Arts to prevent steep cuts in pensions and the sale of city-owned art.
A retiree with a $20,000 annual pension could lose $8,000 if the Legislature does not follow through on the pledge by Gov. Rick Snyder to help settle largest public bankruptcy in U.S. history, Orr said.
“I don’t want to go over the top and use hyperbole, but for some people it would be catastrophic,” he said, warning that if retirees fall into poverty, government welfare spending would rise.
Detroit is proposing to cut pensions by 4.5 per cent and eliminate cost-of-living payments. Retired police officers and firefighters have a better deal that trims only cost-of-living payments.
Orr told a special committee considering the 11-bill bankruptcy package — which would put Detroit under state oversight for decades and includes other conditions that concern Democrats — that he is working under a tight timeline before the bankruptcy judge holds a trial this summer and ideally issues a decision in September.
“We have what we think is a reasonable plan,” Orr said. “But to put it bluntly, we need your money.”
If the state does not join the settlement, he said, pension creditors likely would not approve the plan and contributions from the art museum and foundation would be gone. Proceeds from art sales would be split among all creditors, hurting the pension system, Orr said, and possibly leaving the state on the hook for the funds’ liabilities.
Two more hearings are planned this week and another next week, when the committee chairman, Republican Rep. John Walsh of Livonia, hopes to have a vote.
“It’s a once-in-a-lifetime opportunity to help fix Detroit and do this right,” Walsh said.
The plan has support from the Republican governor and legislative leaders, but its passage is no sure bet in a bailout-averse, GOP-controlled Legislature.
The legislation incorporates parts of the restructuring plan proposed by Orr but adds other conditions, such as moving new Detroit hires from pensions to 401(k) plans once labour contracts expire.
A seven-member commission that would include the governor and Detroit’s mayor along with other state leaders and appointees would oversee the city’s finances, budgets, debt issuance and revenue estimates for at least 20 years after Orr is gone. That is modeled after oversight of New York City, which had a fiscal crisis in the 1970s.
Under questioning from Democratic Rep. Thomas Stallworth III of Detroit, Orr said he had heard from unions involved in negotiations over the $816 million pension and art deal that at least five provisions in the bills are inconsistent with his restructuring plan.
Stallworth said what was agreed to in mediation should be honoured in the legislation.
“We’re walking a tightrope here,” he said. “We want to make sure that we’re doing something positive to help the city but at the same time we don’t want to unilaterally give up all our rights to self-governance.”
Automakers Chrysler, Ford Motor and General Motors said Tuesday they are talking to the art museum about possibly contributing to its $100 million commitment to the pension pool.
Attorney General Bill Schuette also said he will likely drop a legal challenge to pension cuts if retirees vote to accept them. Schuette has been saying any reductions would violate the Michigan Constitution.
But Detroit’s two pension funds and groups representing retirees are supporting Orr’s plan. Retirees have until July 11 to return their ballots.